Nokia Corporation v Her Majesty’s Commissioners of Revenue & Customs (HMRC) [2009] EWHC 1903 (Ch)
Nokia petitioned the UK customs authorities (HMRC) to seize counterfeit cell phones (bearing the Nokia trademark) that had reached London’s Heathrow airport from Hong Kong en route to Colombia. HMRC refused and Nokia challenged the said refusal before the UK High Court.
Mr Justice Kitchin held that since the said counterfeit goods were mere “in transit” goods that were never meant for the UK market, it fell outside the ambit of the relevant EC Customs Regulation (Council Regulation No 1383/2003 of 22 July 2003).
In particular, he held that in order for alleged counterfeits to be susceptible to seizure or detention under the above mentioned regulation, the said goods must have been “used in the course of trade” within the UK. Transit goods do not satisfy this condition, unless and until there is a serious risk that they are likely to be diverted to the local market (the so called “Montex” exception)
Importance of Nokia Decision for Indian Drug Companies
This decision is of monumental significance to Indian generic companies whose drugs were seized by Dutch authorities in late 2008. I had blogged on the TRIPS implications of these seizures and opined that such actions were likely to violate TRIPS, which categorically states that IPR enforcement measures (including border measures) “shall be applied in such a manner as to avoid the creation of barriers to legitimate trade”. Incidentally the EU regulation in question also makes a similar stipulation requiring that “..goods should, in so far as is possible, be kept off the market and measures adopted to deal effectively with this unlawful activity without impeding the freedom of legitimate trade.”
I had also suggested as below:
“Therefore, along with exploring a TRIPS challenge, Indian companies must also ready themselves to challenge such actions under the EC regulation itself. Particularly since case law from the ECJ (European Court of Justice) suggests that the European courts may not be too sympathetic to seizures of in transit/transhipment consignments that were never meant for the EU markets and that are unlikely to impact the commercial interests of IP owners in the EU. However, most such decisions were in relation to trademarks and under an earlier regulation (European Council Regulation Number 3295/94 of December 22, 1994), that preceded the current 2003 EU regulation.”
Applying Nokia Decision to Indian Drug Seizures
Having said the above, it bears noting that one cannot readily assume that Kitchin J’s ruling in the context of “in transit” counterfeit phones would apply on all fours to the Indian drug seizure cases.
Firstly, as is obvious, Kitchin’s decision was limited to counterfeit goods (where identical trademarks have been used) and not patented goods. In pertinent part, Kitchin J held that customs seizures are defensible only when the entry of the allegedly infringing goods into the local border amounts to an “infringement” under the laws of the country whose borders have been breached. To this end, he relied on the wordings of the UK Trade Marks Act 1994 (and the corresponding EC Trademarks Directive, 1988) which stipulates that in order to amount to an infringement, the impugned trademark would have to be used by the alleged infringer in the “course of trade” within the UK. In other words, a mere “in transit” good that is never meant for trade within the UK cannot be said to infringe, merely because it had crossed the UK border.
The UK Patents Act (based on the EPC 1973, as revised by EPC 2000) does not contain any such “use in the course of trade” limitation. However, this by itself is not sufficient to conclude that any and all “in transit” goods that happen to infringe a UK patent could be detained by UK customs authorities. Rather, on the wordings of the UK Patents Act (1977), the allegedly infringing goods have to be “imported” into the UK in order for it to amount to an infringement.
In line with Kitchin J’s reasoning in the Nokia case, it could be argued that an in-transit entry is not really an “import”, as these goods were never meant for the UK market and were unlikely to harm the market of a patent owner within this territory. It also bears noting that drugs violating patent rights (which have been properly authorised by a drug regulator) cannot be equated with counterfeit goods. In fact, public health considerations dictate that such goods must be placed on a much higher and deferential pedestal than counterfeit goods.
UK vs Dutch Courts
Secondly, one may argue that the judgment, at best, reflects a UK understanding of the EC customs regulation and this may not necessarily tally with courts of other jurisdictions, most notably the Dutch courts themselves…who have been known to be more partial to IP owners (with a higher number of “infringement” findings and a lower number of “revocations”) than their English counterparts. In fact in the case at hand, Nokia cited a judgment contending that in an earlier decision (Sisvel v Sosecal, Case No 311378 of 18 July 2008), a Dutch court found in favour of a patent owner seeking to detain “in transit” goods that were being transhipped from China to Brazil.
However Kitchin J cleverly distinguished the Sisvel decision on the ground that it was based upon the particular wordings of Article 6 of Regulation (EC) No 3295/94, a regulation that was subsequently replaced by the 2003 EC customs regulations.
Challenging the Drug Seizures before Local Dutch Courts
Should an Indian company challenge the drug seizures before a Dutch court, it is unclear as to how they would rule. Would they distinguish their earlier Sisvel decision in the same way that Kitchin J did? Would they examine TRIPS provisions on this count and interpret their local laws in such a way that they remain TRIPS compliant? One has to wait and watch.
Notwithstanding the above uncertainty, it is imperative that Indian drug companies challenge the seizures before Dutch courts to the best extent possible (if they haven’t already done so) and the Indian government ought to help in whatever way it can. See this previous post, where we carried an explanation from Dr Reddy’s as to why they hesitated to challenge the seizure before the Dutch courts.
TRIPS: An “Exhaustion of Remedies” Doctrine?
Assuming that a plausible local remedy lies in this case (a challenge before the Dutch courts), would this impact the WTO/TRIPS challenge that the Indian and Brazilian government are preparing to bring in Geneva? In other words, assuming such a dispute reaches a WTO panel, are they likely to duck the issue by asking the parties to get a confirmatory ruling from local courts suggesting that actions taken by Dutch customs authorities were “legal” under Dutch law? Is there any concept of “exhaustion of remedies’ doctrine applicable to the WTO/TRIPS?
Most TRIPS cases have centred around disputes where the purport and ambit of the impugned local legislation have been (more or less) clear. The only challenge in such cases was the interpretation of TRIPS provisions themselves. If this drug seizure dispute goes up before a WTO panel, it may perhaps be the first case where the ambit of the impugned local legislation itself is far from clear.
Yes, definately Indian drug companies and other generic player who are intended to sell the product rest of europe but shipment way is through the europe and it doesn’t mean the goods is for europe or a particular country market always makes controvercies, disputes and hazyness of law.
So, that is very crucial for justice to define definate law which will be able to form clearity and trust. Certainly Indian government also be in helping hand to the Indian grug makers.
Tks for comment Madhav,
Great blog there..
Dear Shamnad,
thanks for bringing this UK court decision to everyone’s attention! Without yet having read the decision itself, I find it interesting that the judge relied on substantive trademark law (use of a TM in the course of trade) to determine the scope of the border measure Regulation. The latter does not define substantive IP protection – but remedies available for IP enforcement.
While I agree with the decision’s outcome, I think the regulation might be understood to establish independent criteria on whether it applies to transit cases. If one assumes for a moment it does, the real question is whether it should allow for enforcement measures even in cases where substantive IP protection in the end is not affected (i.e. because no ‘use in the course of trade’ or no ‘importation’). If this is the case, then such extensive border measures could conflict with the ECJ juridsprudence on free movement of goods (such as Montex). Hence, secondary EC law (Border Measure Regulation) might be inconsistent with primary EC law (fundamental freedom on movement og goods). A colleague Thomas Jaeger wrote more extensively on this matter in a joint article on EC & WTO/TRIPS consistency of these measures we both published in the next issue of IIC.
On the TRIPS consistency matter, there is no ‘exhaustion of local remedies’ in WTO dispute settlement as far as I am aware. Affected traders and other private entities cannot bring cases to the WTO dispute settlement body (DSB), only WTO Member States can. The latter in turn cannot bring a case in front of courts in the EC as only generic traders are affected directly. Hence these are distinct and alternative avenues to pursue (one for Indian Generic Companies, one for India as a WTO Member).
When it comes to the claims India could bring, there are two options:
1) Arguing the EC law _as it is written in the books_ is inconsistent with WTO obligations (e.g. Art.V GATT or Art.51, 52 TRIPS – see eearlier posts on this issue). The US for example chose this in the China – IP Enforcement case arguing that Chinese Law as such infringes various TRIPS provisions (I think these claims are often referred to as ‘as such’ claims or similar). This route entails a much ‘lighter’ burden of proof since your claim does not depend on showing how national institutions apply the law in a WTO inconsistent manner.
2) Arguing that the application of domestic law by administration or other entities for which the WTO Member State is responsible is inconsistent with WTO Law: As far as I know, there are several examples for this outside TRIPS; and WTO jurisprudence has established quite concrete procedural requirements of who must substantiate and proof what in relation to the behaviour of domestic institutions.
In case of transiting Generics, I think the much better route would be to claim WTO inconsistency of the EC Regulation as such. Otherwise, India might have to focus on those jurisdictions (Nehterlands, Germany) where a practice of WTO-inconsistent application of the Regulation has developed. But since I would argue that the Regulation as such already is WTO inconsistent, there is no need to take such a more limited route which also bears higher burden of proof for India.
All the best,
Henning
Dear Henning,
Thanks very much for these insightful comments. I think you’re absolutely right on the exhaustion of remedies option. Not only in terms of different parties seeking these different remedies, but also the fact that the WTo takes it jurisdiction quite seriously.
But I am not convinced with your second point that this issue necessarily falls within what you term as the “as such” rule, meriting only a lighter burden of proof. You state:
“But since I would argue that the Regulation as such already is WTO inconsistent, there is no need to take such a more limited route which also bears higher burden of proof for India.”
But doesn’t Justice Kitchins judgment cast doubt on the above proposition. If two interpretations are possible and a court (perhaps the ECJ) might endorse one or the other, then could this be legitimately be said to fall within an “as such” rule? I understand that India may strategically argue for this: but the question is not so much on litigant strategies as it is on WTO law and which way a panel/AB is likely to rule.
Also, I think Kitchin is absolutely right. The Border measures have to be juxtaposed with substantive national law. And these are not strict separate compartments. For if a good does not infringe the “national” law of the Netherlands, how it can be seized under a “separate” border measure? In other words, if the indian good does not violate the patent law of netherlands at all, it seems incongruous to argue that they would nonetheless violate a separate border control measure that has a separate substantive content and has to be applied independently of national law. Even assuming this is the case, where are we going to draw this separate substantive content from?
Great post!
As to your questions near the end, there is not ‘exhaustion of local remedies’ doctrine in WTO dispute settlement and I can’t see them adding it anytime soon. On a few occassions, panels and the AB have said as much and explicitly stated that they can only proceed on the information as it stands before them. The best example of this (although not directly on point) is the 21.5 compliance hearing in US-Shrimp/Turtles. The Malaysian argument against compliance was that even though the US authorities were applying the law in a shipment-by-shipment manner (deemed to be WTO compliant) as opposed to merely country of origin country (deemed to be WTO inconsistent) the issue was before the US courts and it would likely rule against the US government (as in fact they had three times earlier). The AB essentially said it didn’t matter, and they couldn’t assume how the court was going to rule. They simply proceeding on the basis that the US was, at the time, complying. If circumstances changed, another challenge could be made.
Thanks for the additional clarification Bryan!
If I understand you right and link this to the further issue Shamnad raised, WTO panels and the AB would disregard court rulings (such as the one from the UK) as long as the law (here the EC Border Regulation) as such seems to infringe WTO law? Or would it need additional (WTO-law infringing) practice by border authorities?
And what about if an authoritative judgement (by the ECJ) comes about which states that the law (EC Border Measures Reg) must be interpreted in a way that allows transits if there is no threat of diversion to local markets?
From my understanding, India can (and should) bring an ‘as such’ claim, unless there is such a ECJs ruling in place which WTO panels might have to take into account…
Shamnad, as to the juxtaposing border measures with national IP laws (i.e. examining whether e.g. transiting goods involve any potential infringement of domestic rights), I am absolutely with you that this is the proper approach. TRIPS in my opinion also warrants this by demanding in Art.52 that customs must act on the basis of a prima vacie infringement based on the law of the country of importation. Of course there is no (and cannot be) a separate substantive violation standard for border measures.
But for me it is not clear that the EC Border Measure Regulation, as it has been applied by especially the Dutch custom authorities, really adheres to this. It may – in practice – set a rather wide range of precautionary measures (especially detentions): From the information available in the news it seemed that goods merely in transit and with no apparent threat of being diverted to domestic markets had been detained for several months and sometimes even been destroyed. If that is truly the case, then the Regulation seems to be applied in a manner which allows measures regardless of proper scrutiny whether all requirements of domestic substantive IP laws (e.g. use in the course of trade, etc) are met.
Indeed, unless there is a concrete threat of diversion into the domestic market, any requirement in domestic law which links to the use within the domestic territory can never be fulfilled by goods which are merely transiting. Of course, one can debate to which extend the domestic IP law imposes such territorial linkages within its substantive requirements for IP infringements. While from my knowledge most laws do so implicitly (e.g. by requiring ‘use in the course of trade’, or ‘importation’) and several court decisions (e.g. German courts denying patent infringements in cases of goods with no links to the domestic market) have acknowledged this, there are other examples of ‘extraterritorial’ application of domestic laws where few or mere artificial linkages to domestic territory or markets have been found sufficient to trigger jurisdiction, the application of domestic law and the finding of infringement.
(end of part I…)
…(comment part II)
Against this background, I just took the pains and looked into the rather technical language of the Regulation once more: Its recitals 3-8 explain its main procedures in less technical (custom law) terms:
In cases where counterfeit goods, pirated goods and, more generally, goods infringing an intellectual property right originate in or come from third countries, their introduction into the Community customs territory, including their transhipment, release for free circulation in the Community, placing under a suspensive procedure and placing in a free zone or warehouse, should be prohibited and a procedure set up to enable the customs authorities to enforce this prohibition as effectively as possible. (Recital 3)
Customs authorities should also be able to take action against counterfeit goods, pirated goods and goods infringing certain intellectual property rights which are in the process of being exported, re-exported or leaving the Community customs territory. (recital 4)
Action by the customs authorities should involve, for the period necessary to determine whether suspect goods are indeed counterfeit goods, pirated goods or goods infringing certain intellectual property rights, suspending release for free circulation, export and re-export or, in the case of goods placed under a suspensive procedure, placed in a free zone or a free warehouse, in the process of being re-exported with notification, introduced into the customs territory or leaving that territory, detaining those goods. (recital 5)
Proceedings initiated to determine whether an intellectual property right has been infringed under national law will be conducted with reference to the criteria used to establish whether goods produced in that Member State infringe intellectual property rights. (recital 8)
To make the Regulation easier to apply for customs administrations and right-holders alike, provision should also be made for a more flexible procedure allowing goods infringing certain intellectual property rights to be destroyed without there being any obligation to initiate proceedings to establish whether an intellectual property right has been infringed under national law. (recital 9)
For our purpose, recital 8 makes clear that infringement must be determined in accordance with the domestic IP law. If that law demands the use of the good in the domestic market (as will be usually the case in TM (use in course of trade) and patent law (importation) as far as I know), then transiting goods with no risk of diversion must be released. Hence you and Judge Kitchin are absolutely right.
The problem seems to be that such release either takes a looong time or sometimes does not happen at all.
Henning
Dear Byran and Henning,
Thanks for the incisive comments. I’m thinking aloud here: if the ambit of the law is not clear (as to whether or not Dutch authorities could have seized transit goods, when they did not really amount to “imports” under Dutch national law), but a seizure has nonetheless been made, can the WTO make a declaration that if the law is interpreted in a manner to sustain the seizure then it would violate TRIPS. In other words, the WTO ruling is a conditional non compliance ruling (if you interpret the law in a certain manner, it would amount to non compliance). To this extent the order may come close to being a declaratory order. Are there any precedents to sustain such an order? What do you think?
Dear Shamnad,
I have not come accross any type of declaratory orders/rulings by any WTO panel/AB. But hten again, I am not an expert in WTO dispute settlement…
I think if the ambit of the law is not clear (and it can be understood in a WTO consistent way), a country must show a prima facie case of WTO inconsistent application of the law (hence no ‘as such’ claim). The ambiguity therefore works in favour of the responding WTO country (defendant) whose law’s are presumed WTO consistent unless prima facie evidence suggests otherwise – then the burden of proof shifts to the defendant.
But this is merely my vage recollection of DSU burden of proof rules as developed by the AB…
Henning
Dear Shamnad,
This is the first time that has happened to India which is an eye opener. In fact, if seizure of the consignment which is destined to some other country violates TRIPS, then the matter must be taken to WTO for seeting up a panel to address this issue. There has not been any single instance at WTO panel till date. According to me, this would help correctly undertstanding the legal provisions under EC. But in any case, the matter if not resolved by consultations between India and EC, the matter must be put up to WTO.
dear shamnad
nokia judgement by u.k COURT is very helpful and india can point out to wto panel that EC regulation in transit is arbitarily applied by EC member states is in consistent with Gattv,EC members trips obligation and is discriminatory and hence is wto inconsistent.it is a very good case india has before wto panel.and so it should immediately call for consultation failing which it should file a case against EC before the panel.india has a very good track record before wto panel and appellate bodies since the incumbent first secretary -legal SMT UMA SEKHAR at indian mission –wto wing–BOTH CASES US-INDIA SHRIMP DISPUTE CASE AND US-INDIA ADDITIONAL AND EXTRA ADDITIONAL DUTY CASE WERE WON BY INDIA.–IT SHOULD NOT MISS THE OPPORTUNITY AND HELP INDIAN DRUG COMPANIES FROM SEIZURES IN TRANSIT BY EC MEMBERS.FURTHER THE INDIAN DRUG COMPANIES MUST ASSIST COMMERCE MINISTRY BOTH FINANCIALLY AND BY PROVIDING FACTUAL INFORMATION SO THAT THE CASE CAN BE CONTESTED SUCCESSFULLY.